sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax
Latest Expert Exchange
News Headlines »
 Income Tax Return filing 2018: Here are some important tips for you
 Change in Examination Venue in Thane, Zone – II, May 2018 Examinations
 Here’s all you need to know New Income Tax return for salaried class available on IT portal
 What to do if you missed the (second) tax deadline
 Income-tax (5th Amendment) Rules, 2018 - Notification under section 9A (3) of the Income-tax Act, 1961 in respect of Fund Manager Regime
 Income Tax department warns salaried class again filing wrong ITRs
 ITR-1 form for AY 18-19 now available for e-filing
 New Income Tax Return Form for Salaried Class available in Portal
 Income Tax Return: ITR-1 ready for e-filing, says I-T department
 6 Tax changes you need to keep in mind while filing ITR for FY17-18 Income Tax Return efiling
 Income-tax (5th Amendment) Rules, 2018

No tax relief likely for MTM loss
October, 29th 2008

IT IS turning out to be a double whammy of sorts for companies that have taken a hit on account of mark-to-market (MTM) losses due to their exposure to forex derivatives. These companies may find it difficult to convince the income tax (I-T) department to allow MTM losses as deduction.

Sources in the I-T department pointed out that there are no specific provisions in the Income Tax Act dealing with this issue. Moreover, there are no precedents or case laws that clearly define the treatment of losses incurred by companies.

As a result, these companies might not be allowed to set off such losses against profits to reduce their tax liability. Judicial opinion is divided on the MTM issue. However, logically it should be allowed as a normal business loss, PricewaterhouseCoopers (PwC) executive director Ketan Dalal said.

I-T sources, however, have a different view. There are no specific provisions under the Income Tax Act, 1961, or direct judicial precedents, dealing with the treatment of losses or gains resulting from derivative contracts. Hence, this issue would need to be examined on the basis of general principles relating to deductibility of losses or taxability of gains.

As a general rule, items, which are revenue in nature, are taxable or deductible, and items, which are capital in nature are not taxable or deductible, the source added.

However, there is a view that a case-to-case basis approach may be adopted in such cases. Deduction against such losses, which are notional, can be allowed only in the year in which actual liability to pay arises, sources said.

A large number of firms, even small- and mid-sized, had taken exposure to derivatives following large-scale volality in the Indian currency. Many of these companies have to shown MTM losses on their books due to the new accounting guidelines issued by the Institute of Chartered Accountants of India.

I-T law makes a distinction between an actual liability which a company faces at present and a potential liability in the fu-ture, which for the time being is only contingent. Contingent li-abilities do not constitute expenditure and cannot be subject matter of deduction. Deduction can be allowed only in the year in which the li-ability to pay accrues, and it accrues only when the liability crystallises or becomes ascertained, the source said.

Home | About Us | Terms and Conditions | Contact Us
Copyright 2018 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - Contact Us

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions